Obama: Bailing Out the Banks "Was Necessary," but "I Hated It"

In President Obama's first State of the Union address, he tried to capture the public's anger toward Wall Street while defending his decision to bail it out. He argued that while his rescue of the banks wasn't popular, it was necessary. As a palliative, he suggested that $30 billion of the repaid TARP money be given to community banks to lend to small businesses. And he pushed for a bill that reduces the risk in the financial system to prevent a recurrence of the financial crisis.Obama cast his actions regarding the banks as a necessary response to a dire emergency: "A year ago when I took over as president, our financial system was on the verge of collapse. Experts told us that if we did not act, we might face a second Great Depression. So we acted immediately and aggressively."

He continued: "One year later, the emergency is past, but the devastation remains. Many people don't understand why bad behavior on Wall Street is rewarded but middle-class hard work isn't."

Obama suggested that the bank bailout was the lesser of two evils. He commented that many people wondered why we needed to "shore up the same banks that caused this crisis." And he put himself squarely in the midst of popular opinion about the financial rescue: "We all hated the bank bailout. I hated it. You hated it. It was as popular as a root canal."

Repaying Americans for Their Help

The president suggested that he made the bailout plan he inherited better and pointed out that now, those bailed-out banks owe something to the American people. "So we supported the Bush bailout, but we made it more transparent," he said. "We recovered most of the money we spent on banks. Most, but not all." The next step, as Obama see it: "I suggested that we needed to put a tax on banks. If these firms can afford the big bonuses, they can pay a modest fee to taxpayers to rescue them in a time of need."

In that vein, he proposed that a big chunk of repaid TARP money go to small businesses. Said Obama: "Even though banks on Wall Street are lending again, they're lending to bigger businesses, not small ones. So tonight I'm proposing that $30 billion of the money that the banks repaid be given to community banks to give small businesses the credit they need to stay afloat."

And Obama pushed for financial reform and threatened to push back to Congress any financial overhaul bill that doesn't meet his standards. As he said, "I'm not interested in punishing our banks, I'm interested in a strong financial system.... The House has passed financial reform to reduce risk in the financial system. Lobbyists are trying to kill the bill. So if a bill arrives at my desk, and it does not meet the test of real reform, I will send it back until we get it right."